In Azure AD, an external user can be added via an email invitation (also read B2B versus B2C Users in AAD  and More on AAD Guest Users).

If that email is either a google workspace or a microsoft live account , then true federation and SSO are supported out of the box.

If that email is neither of the above, one can still invite the user, but they would be required to sign in using a One Time Password (OTP).

Types of B2B Users

B2B users can be vendors of SaaS apps (not really true collaborators) or actual B2B partners (collaborators).  The not-really collaborators do not typically need to be in your AAD tenant (they can always login directly into their SaaS apps to troubleshoot).

SMS Authentication for B2B Users, In General

In general, B2B users CAN be invited to use more than one factor for authentication.

This is done via Conditional Access Policies in AAD. A CAP can be created for MFA for guest users – and applied to ALL guest users. This way, whenever a guest user accepts an invitation, they will be led to a screen asking for additional factors.

SMS Authentication for B2B Users with JUST OTPs  (no other way to authenticate)

For regular B2b guest users (that login using their email and password), it is possible to enable MFA (tenant wide). And when enabled, each user gets to choose their second factor on initial login.

However, for a OTP Only User, one cannot typically use SMS / Text based One Time  passwords in AAD. There is a request for this feature open in AAD.

How is OTP Enabled in Azure AD?

It is enabled tenant wide.  For regular guest users, this is enabled by enforcing MFA (by defining a  Conditional Access Policy)

For non regular guest users (OTP only users), there is an option to enable One Time Passwords tenant wide. The only choice here is whether this OTP is to be supported for EXISTING guest users or NEW users only.  You do not get to choose specific AAD groups to apply this to.



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